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Two Trends to Watch in the Toronto Condo Market

There are two trends that condo buyers will want to keep an eye on in the next several years.

1. Disappearing Parking Spots.

There are now countless buildings downtown that are under construction that will have multiple-times more units than parking spots available. RCMI Condos by Tribute is actually being built with no parking spots at all. Mega towers like INDX and Massey that were both launched this year will have 600+ units each and only around 100 parking spots each. Only 1 out of every 6 or 7 units will have a parking spot! Compare this to buildings built even just 10 years ago where pretty much every unit came with a parking spot. Resale buyers today who need a parking spot area already feeling the pinch and are being restricted to a smaller and smaller portion of the overall condo marketplace.

Two things to take from this trend:

1. Consider buying a parking spot with your next investment condo. While it’s true that many downtowners are giving up on car ownership altogether, I find that those in the $100K+ income bracket still have cars and have no plans on getting rid of them.

2. Prices for parking spots have only one place to go: UP. The imbalance between units and parking spots being built today will result in very high prices in the near future. I could definitely foresee a parking spot in a non-luxury condo building go for $100K in the next 5 years.

2. Disappearing 2 bedroom Units.

Check out this chart from Realnet which shows the breakdown of the different unit types for new condos in the last 12 years:

This chart shows a dramatic change over the last 8 years in the suite mix of new condominiums. In 2004, 2 bedroom and 2 bedroom+den suites made up 49% of the market and 1 bedroom and 1 bedroom+den suites made up 42% of the market. Today, in 2012, the 2 bedroom share is 31% (down 18%) and the 1 bedroom share is 65% (up 23%).

The obvious takeaway from this trend is that 3-5 years from now we may have a serious shortage of 2 bedroom units in the city. This is particularly interesting if you are an investor: consider buying a 2 bedroom unit in pre-construction today because a shortage of this type of unit could cause rental rates (and prices) to rise quicker than for 1 bedroom units. Move-up buyers who want to stay in a condo will have fewer and fewer choices as well pushing up demand for larger suites in the resale market.

Questions or comments? I’d love to hear from you.

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5 Responses to “Two Trends to Watch in the Toronto Condo Market”

  1. Roland

    Interesting post Andrew!
    I thought that many investors go for the smaller units because of the lower initial cost and subsequent carrying costs and that one bedrooms and studios rent out much easier. The way it stands the size of the two bedrooms are the size of what used to be decent sized one bedrooms!

  2. Andy

    With the price of parking being so high at recent launches like Indx and Tux (parking maintenance fees being high as well), have parking spots been selling? And do you recommend to your clients to purchase parking at these increased prices?

    This is an awesome blog post!

  3. Adam

    Roland. I could be wrong, but I believe that 2br rentals downtown have a lower average DOM than 1brs. Many investors do go for smaller units because they require less capital, have lower carrying cost and can post some impressive gains. Having a smaller mortgage is also nice in rates do go up substantially. The point Andrew is making is that 2br have a stronger chance of higher appreciation because the market is being flooded with 1 and 1+den units. I agree with Andrew. This is an interesting find. Historically 2br’s appreciate 1.5% more per than 1 brs. With the projected decreased of the future availability of 2brs this number will likely be higher. I think the drop in 2br sales is due largely to investors ignoring them in-favour of the smaller units. I think they may be shooting themselves in the foot with this approach because in the end it’s the end-user that they depend on.

  4. Adam

    100k parking?!?! I’m sitting on gold :D

  5. Alan

    Developers are cramming more rooms in less space, so a 2-bedroom in a new construction condo could be the same size as a 1-bedroom that was built 5 or 10 years ago. I have seen a recently launched condo with 2-bedroom units in a space of 650 sq.ft. which I didn’t think was possible.

    So while 2-bedroom units are becoming more of a rarity, so are condos with spacious rooms.
    Bedrooms are just barely large enough to squeeze a queen or full bed and a couple night tables if you are lucky. You’re really lucky if you can fit a dresser in there.
    New condos also have very little space to accomodate a proper dining table (bistro tables don’t count), and often kitchen islands doubles as your dining space. A full size sofa will barely fit in these new living rooms with no room left over to fit any other furniture. This makes having company over or entertaining a party in your own home less than ideal.
    So I also see condos with spacious rooms as being more valued as a plethora of extremely compact condos will flood the market.

    Storage lockers are also must and also wise to purchase more than one, either as an investment or to use yourself especially if you have a small condo with little closet space.

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